Solid start to the year. Capstone reported Q1/21 adjusted EBITDA of $119mm, above our estimate of $87mm and consensus of $85mm. The better-than-expected EBITDA result was driven by higher sales and lower site costs.
Production of 47.8mmlbs at C1 costs of $1.70/lb exceeded our estimate of 43.4mmlbs and $2.06/lb, respectively. The outperformance was driven by higher grades and throughput at Pinto Valley. Cozamin also realized the benefit of the completion of the one-way ramp with throughput materially higher q/q.
Long-term debt fully repaid. The strong operating performance resulted in record adjusted cash flows of $95mm, and we calculate the company generated $45.8mm of FCF in the quarter. Capstone has fully repaid its revolving credit facility in Q1 ($184.9mm), and is now in a net cash position of $45mm, including short-term investments.
2021 production guidance is unchanged at 175-190mmlbs copper at C1 cash costs of $1.75-1.90/lb. The company continues to expect its growth initiatives at both Cozamin and Pinto Valley to drive annual production towards 200mmlbs in 2022 and 2023. We are now modelling 186.3mmlbs of copper in 2021 at C1 cash costs of $1.75/lb and AISC of $2.63/lb.
Strong leverage to copper. At $4.00/lb copper, which is ~$0.50/lb below current spot prices, Capstone expects to generate ~$1bln of after-tax cash flow during 2021-2023, which is consistent with our modelling assumptions. Furthermore, at $4.00/lb copper, we expect Capstone to generate ~$543mm of FCF during 2021-2023 (excluding Santo Domingo) vs. our base case FCF assumption of $348mm using an average copper price of $3.54/lb.
Catalysts/milestones. Potential TSX-Index inclusion in June (~12mm shares of demand), conclusion of its ownership structure and financing plan for Santo Domingo by mid-year, and a technical report update on the PV optimization initiatives in H2/21.